Market Snapshot: U.S stocks jump as Fed vows to use full range of tools to revive economy hit by coronavirus

Market Snapshot

Small-cap Russell 2000 index up 5.5%

Federal Reserve Board Chairman Jerome Powell.


AFP/Getty Images

U.S. stocks surged back to near session highs Wednesday afternoon, after Federal Reserve Chairman Jerome Powell vowed to mount a robust and protracted fight to offset fallout from the coronavirus pandemic which he said “will weigh heavily” on economic activity, employment and inflation in the near term.

What are major indexes doing?

The Dow Jones Industrial Average
US:DJIA
was up 628points, or 2.6%, at 24,723, while the S&P 500
US:SPX
was up 89 points, or 3.1%, at 2,952. The Nasdaq Composite
US:COMP
added 339 points, or 3.9%, to 8,946.

The Russel 2000 Index
US:RUT,
which tracks smaller companies, was up 5.4%, or 69 points, at 1,367. 

Stocks gave up early gains Tuesday to end lower, with the Dow snapping a four-day winning streak to close at 24,101.55, down 32.23 points, or 0.1%. The S&P 500 lost 15.09 points, or 0.5%, to close at 2,863.39, while the Nasdaq Composite settled at 8,607.73, down 122.43 points, or 1.4%.

What’s driving the market?

Federal Reserve Chairman Jerome Powell expects the pandemic to weigh heavily on the U.S. economy, while reiterating a commitment to use the full range of tools to help offset its considerable risks.

The Fed’s emergency credit facilities are “wide open” and “we can do more of that,” Powell in a press conference following the two-day policy meeting. He also said the Fed’s support is based on “lending, not spending,” with the caveat that the central banks can’t make outright grants or lend to insolvent businesses.

“It may well be the case that the economy needs more support,” Powell said. “For now, we think our current stance is appropriate.”

Live Blog: Powell holds press conference as central bank strains to support economy, markets damaged by coronavirus

Economists were expecting the Fed to reassure investors and the public that it will try to cushion the largest economic downturn since the Great Depression of the 1930s.

“There’s no question that they have been much more pro-active than in 2008,” Tim Courtney, chief investment officer at Exencial Wealth Advisors, told MarketWatch in an interview. “The amount of money they’re looking to potentially pump into market, that supports equity valuations as well.”

The central bank has unleashed a series of emergency measures since March in response to the coronavirus crisis. The Fed cut its policy interest rate to nearly zero, started an open-ended bond-buying program, and moved to backstop loans to Main Street and Wall Street to ensure financial markets continue to function.

Powell also said Wednesday that the Fed was in no hurry to push benchmark interest rates higher, but to expect several of its credit facilities to be up and running soon.

“They have been able to steady the corporate and municipal bond routs without even having to actually buy the bonds thus far, which is ideal,” wrote Brett Ewing, chief market strategist at First Franklin Financial Services.

Read:Here’s the latest on the Fed’s actions to keep credit flowing to the U.S. economy

Stocks received an earlier boost after Gilead Sciences Inc.said Wednesday morning that a government-run clinical trial evaluating its experimental drug remdesivir in certain COVID-19 patients met the study’s main goal. The announcement stirred hopes that pharmaceutical companies were making progress toward a treatment of the COVID-19 disease, but investors are still awaiting details from the study.

See: Gilead reports early positive data in remdesivir studies as COVID-19 drug, though Chinese trial sees no benefit

The news helped to outweigh the bearish impact of a sharp slump in U.S. economic growth in the first quarter, gross domestic product shrinking by 4.8% on an annualized basis.

See: GDP sinks 4.8% in the first quarter — biggest drop since 2008 and worst is yet to come

Economists surveyed by MarketWatch, on average, were looking for a 3.9% fall in GDP after a 2.1% expansion in the fourth quarter. The first-quarter decline is expected to be only a foretaste of the economic carnage caused by the pandemic lockdowns in the current quarter, but some investors are already looking into the future.

In other U.S. data, pending home sales fell to its lowest level since 2011.

U.S. stocks have been recovering from March 23 lows in recent days on optimism over efforts by European countries and some U.S. states to begin easing up on lockdowns aimed at slowing the spread of COVID-19.

“What the Fed is doing is a real confidence builder, and that brings money off the sidelines into riskier assets,” Bruce Bittles, chief investment strategist at Robert W. Baird & Co., told MarketWatch.

He also pointed to significant gains this week in indexes that track smaller business as a sign of more the more bullish market sentiment.

“That’s what we’ve seen in the past three days, which suggests the rally since March 23 is more than a rally and could transform in to a new bull market.”

The global case tally climbed to 3.13 million on Wednesday, according to data aggregated by Johns Hopkins University. The death toll rose to 217,555. At least 935,308 people have recovered. The U.S. has the highest case toll at 1.01 million and the highest death toll at 58,355.

Investors also have been sifting through another deluge of first-quarter earnings reports.

Which companies are in focus?
  • Gilead Sciences Inc.
    US:GILD
    said the trial of its remdesivir drug treatment for COVID-19 met its main goal, and said the National Institute and Infectious Diseases will provide details at an upcoming meeting. The pharmaceutical company’s stock climbed 6.9%, after seeing a halt to trading before the opening bell.

  • Google parent Alphabet Inc.
    US:GOOG
    US:GOOGL
    delivered first-quarter results after the closing bell Tuesday, with earnings suffering from a “significant slowdown” in ad sales, though revenues topped expectations. Shares were up more than 10%. Opinion: Google gives Wall Street what it wants, and the stock shoots higher

  • Dow component Boeing Inc.
    US:BA
     rose.5.8% after it reported free cash flow was better than forecast, but missed first-quarter revenue and earnings expectations. It also said commercial airplanes fell less than expected.

  • Shares of chip maker Advanced Micro Devices Inc.
    US:AMD
    were 3.4% lower, after the company late Wednesday said the COVID-19 pandemic would trim its growth in 2020. First Take:AMD has only one question still lingering about COVID-19 effects

  • Starbucks Corp.
    US:SBUX
    shares declined 1.9% in trade after the coffee-chain giant fell short of earnings expectations that had already been trimmed due to worries about the effect of the pandemic on sales.

  • Shares of Ford Motor Co.
    US:F
    were down 1.8% even after the auto maker reported a wider-than-expected first-quarter loss of $2 billion, or 50 cents a share, and missed sales expectations as the coronavirus outbreak continues to eliminate demand for cars, and trucks and keeps factories closed.

  • General Electric Co.
    US:GE
    shares were off 2.2%, after the industrial conglomerate reported first-quarter adjusted profit and free cash flow expectations that came in below estimates but topped revenue forecasts. The company said it cut 700 jobs in its power division in the first-quarter.

  • Shares of Mastercard Inc.
    US:MA
    climbed 7.1% after topping earnings and revenue expectations for its first quarter

How are other markets trading?

Crude prices recovered ground, but still remain at depressed levels. West Texas Intermediate oil for June delivery
US:CLM20
rose $2.72, or 22%, to finish at $15.06 a barrel, on the New York Mercantile Exchange. Gold for June delivery
US:GCM20
fell $8.80, or 0.5%, to settle at $1,713.40 an ounce.

The 10-year Treasury note yield
BX:TMUBMUSD10Y
was up 1 basis points to 0.62%. Bond prices move in the opposite direction of yields.

In overseas equities, the STOXX Europe 600 index
XX:SXXP
finished up 1.8%. China’s benchmark CSI 300
XX:000300
index and Hong Kong’s Hang Seng index
HK:HSI
posted slight gains. Japanese exchanges were closed in observance of the Golden Week holiday.

Sunny Oh contributed reporting

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